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Barrick Gold Corp. (NYSE:ABX)

Q1 2006 Earnings Conference Call

May 3, 2006, 5:00 p.m. EST

Executives

James Mavor - VP, IR

Greg Wilkins - President and CEO

Peter Kinver - EVP and COO

Alex Davidson - EVP, Exploration and Corporate Development

Jamie Sokalsky - EVP and CFO

Analysts

Barry Cooper - CIBC

John Bridges - JP Morgan

John Hill - Citigroup

Oscar Cabreras - Goldman Sachs

Victor Flores - HSBC

Kerry Smith - Haywood Securities

Patrick Chidley - BJM

David Gagliano - Credit Suisse

Tanya Jakusconek - National Bank Financial

Larry Strauss - GMP Securities

Mark Smith - Dundee Securities

John Tumazos - Prudential

Don Blyth - Paradigm Capital

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Barrick Gold Corporation first quarter 2006 results conference call. (Operator Instructions)

I would now like to turn the conference over to Mr. James Mavor, Vice-President Investor Relations, Barrick Gold Corporation. Please go ahead, sir.

James Mavor

Thank you, Operator, and good afternoon, ladies and gentlemen, and thank you for joining us today. We issued our first quarter results about an hour ago in the form of a news release, which included 2006 guidance for our regions and the consolidated guidance for the company.

As well, we have posted on our website the company's financial statements and accompanying MD&A. In addition, full-year guidance at significant mines and actual mine statistics for the first quarter are available on the website at www.barrick.com, or by contacting our Investor Relations department in Toronto.

Now, before we begin, I'll read the forward-looking statement. Management will be making forward-looking statements during the course of this conference call. For a complete discussion of the risks, uncertainties, and factors which may lead to our actual financial results and performance being different from the estimates contained in our forward-looking statements, please refer to our year-end report for our most recent AIF filing.

With that, I'll turn the call over to our President and CEO, Greg Wilkins, who will chair this conference call.

Greg Wilkins

Thanks, Jim. Good afternoon, everyone, and thank you for joining us at the end of the day. We know it's a bit of an imposition, but because of our Annual General Meeting tomorrow, we thought we would get our results out in advance of that and have the opportunity to give you a bit of a briefing on the quarter before we got to the meeting tomorrow.

I'm joined here by my colleagues, of course, Peter Kinver, Jamie, Alex, and Pat Garver. We are all here to answer your questions after we have done the presentation.

I would like to go over the first quarter results and the highlights, and then we will provide you with an update on the integration of the Placer acquisition. I have asked Peter and Alex to do some presentations today on the operations and on the exploration side, with an emphasis towards what they have found as we've gone through the first 90 days reviewing the Placer situation. Then I would like to talk about the hedge book, and then we'll certainly open it up for questions.

Jim also mentioned that we've changed the format of our presentation and the distribution of information. We have really done this to try to make it easier for you to grasp the performance of the company in an overview sense, look at the company region by region, and then we provided the full details on the website, so at least we're going to save a number of trees as we go through this more refined process.

As we've looked at the information and try to structure it for your understanding, we think that it will be perhaps easier to comprehend, given the size and complexity of the company.

We are very pleased with the first quarter results. I must say that the strong metal prices have finally started to propel earnings and cash flow, and we have seen the margin expansion that we've been waiting for. It has come through in the fourth quarter of last year and we see it again coming through in the first quarter.

We know it was a remarkable quarter. Of course, we completed the Placer acquisition this quarter. It seems like it's been a long time coming, but in fact, we just took up the shares in January and we completed the transaction in March, so it's been a relatively short period of time. We have been very active in the integration process and we have been out to look at the assets and look at the opportunities.

We have also in the quarter received approval for Pascua-Lama for the Environmental Impact Assessment in Chile. That was a challenging approval to achieve. I think it's really an appropriate recognition of how the process actually works with the dialogue that takes place between the company and the regulators and the communities and the environmental people, and therefore we end up with a very good result there.

We also poured gold from the Cowal mine just this past Sunday, and it marks the fourth new mine that we have opened in just 12 months. We also completed, or are nearing the completion of Tethyan Copper Company in partnership with Antofagasta. This will give us exposure to some 27 billion pounds of copper and 21 million ounces of gold for development in Pakistan. We're really actually quite interested in that and we're very pleased to have that 50/50 partnership with Antofagasta.

Lastly, as we have been mentioning throughout our conversations with our investors, we are aggressively going to reduce our hedge book and I'll give you some more details on that in a few moments.

If we look at the financial results for the quarter, the quarter is really remarkable in the amount of growth and earnings: $224 million, up over three-fold from last year. On a per share basis, which is really the more important measure, more than double. We saw the same results in operating cash flow, up very significantly from last year and more than double on a per share basis.

In the quarter, we produced almost 2 million ounces of gold. The costs were $283 an ounce, certainly in line with our expectation and guidance that we shared with you earlier. A little bit higher than last year, which was $241 an ounce. We can certainly talk about that in a moment.

Equally, for the first time we had some copper contribution to our financial results, and obviously the very strong copper prices with our low-cost copper production had a very important impact on our earnings and cash flow.

Production and cash costs for the quarter of course only include Placer's operations from the date of take-up of the shares, which was January 20th, and do not include the production or the financial results for the four mines that are being sold to Goldcorp. In addition to benefiting from the acquisition itself, our first quarter results also benefited from the rising metal price environment, from the hard work that we put into cost containment strategies, and contributions from our newer, lower-cost operations which were opened over the course of last year.

Of course, we expect our gold production over the balance of the year to increase over what we see in the first quarter, as we stick with the guidance that we had shared with you earlier in the year.

With respect to the Placer acquisition, as I mentioned, we picked up 81% of the shares on January 19th. The final transaction was completed on March 8th. It went very smoothly. We issued some 323 million common shares of the company, paid out $1.3 billion in cash for a total consideration of about $10 billion.

We expect to close with Goldcorp the sale of the Canadian assets and certain other interests for $1.6 billion in the middle of May.

The earnings this quarter were not really impacted by transaction costs, either our own or Placer's. We had really affected our costs in the acquisition price, and Placer had expensed its defense costs prior to the acquisition, so the earnings were really unaffected by those unusual events.

On the integration side, we had opened up with a hundred-day plan. We launched on January the 20th. We had developed a comprehensive plan to go out and touch all of the operations with really the goal of communicating with all of the Placer people as quickly as we possibly could.

We used our regional structure to speed that along. We focused on urgent items. We focused on bringing direction to the operations, clarity of responsibilities. We really wanted to eliminate the uncertainties that exist in people's minds anytime that there is a major change in corporate life.

We did see some impact of the uncertainties over the course of the bid period in the first quarter operating performance, but I'm pleased to say -- and you'll hear more from Peter and Alex -- that all of that has really settled down and now we are getting back to business.

We interviewed a huge number of the Placer folks. We were really focused on bringing them and integrating them into the organization, wanting to find the right people for the right roles, develop and implement the organizational structure that would be effective.

We immediately got on with the process of consolidating the business and exploration offices around the world and integrating the teams as quickly as possible. We have already started eliminating redundancies. We anticipate really completing the integration process by the end of June, although there will be a lot of ongoing work as we integrate the culture and so on going forward.

Having been through this part of the integration program, we remain confident in our ability to achieve the $200 million in synergies. We expect to have a full $200 million annual run rate by 2007, not to say that we won't achieve some of those synergies in 2006.

To give you a little more color on the synergies, we expect to achieve about 25% of the total savings through administration and through offices globally through the consolidation. We’ll wring out about another 25% from exploration -- and Alex can talk about this in more detail -- but we are not going to give up any opportunity for discoveries by virtue of the lower cost or the lower investment in exploration activities.

On the operational and technical services side, which will be the largest portion of the synergies, we really identified shared infrastructure, project optimization, and supply chain management as the principal components for this portion, but we do not include what we think are longer-term operational efficiencies, which Peter will touch on.

Lastly, finance and tax, we see a lot of opportunity on the tax side for some debt consolidation, reduce our overall cost of capital. In addition to the earnings benefits on the tax side, we will also see tax cash flow benefits on the tax side.

Just by way of example, Zaldivar down in Chile is generating significant taxable cash flow and we are able, through the investment back into Pascua, to eliminate dividend withholding taxes and offset some income taxes as a result of those expenditures -- direct, real-time savings.

I think the real question that sits on people's minds as we come into this conference call is, are we happy with the Placer transaction? Fundamentally, we approached it from an unsolicited point of view, recognized that we were taking on some risk in that process, I think the early guidance was a tad disappointing to investors when we came out with it -- so are we happy? I think the answer is categorically yes.

Peter and Alex will again put some meat on the bones, but basically, as we've gone through the process, we anticipated that the skeletons were in the data room, the good news was in the market, but in fact, as we've gone through the assets we are seeing a lot of opportunity for value enhancement. As we look at the production profile during the fourth quarter of last year, Placer really were saying that they thought that '06 and '07 would be relatively flat. In fact what they were saying is that Cortez was going to be down, Porgera was going to be down, but they would be offset by increases at Bald Mountain and North Mara.

I think time will prove them to be correct, but it will take just a little bit longer to get the increases at Bald Mountain and North Mara for some relatively straightforward short-term operational challenges.

Longer term, we see great potential in the Cortez area, in the Porgera area, North Mara, Bald Mountain, of course, is in Nevada as well, and there’s a lot of opportunities for us to eliminate these short-term issues and really focus on medium- and long-term value creation.

With that, let me turn it over to Peter and he can give you some of the details.

Peter Kinver

Thank you, Greg. Good afternoon, everyone. I'm going to give you an overall look at where I see things today, as well as a brief overview of our key assets.

First, I would like to make an overall comment on the assets that we've acquired. Since we took over on January the 20th, when we got control of Placer, the regional presidents and myself and Greg have been traveling around the world extensively to visit the key operations and assess their strengths and weaknesses.

I must say, I am really encouraged and pleased and excited by what I have seen, because I think there's lots of areas at these mines where we can make operation improvements and enhance efficiencies. We have also had our operational review teams go into the sites on several occasions, and we're finding ways that we can extract a better performance from these operations.

We're also working hard to capture the operating synergies that were created through the combination. I think we have created a powerful global portfolio of assets, although they are not without their challenges. I think there are definitely opportunities for Barrick to create values through finding these improvements. I also believe that our company is now well positioned to capitalize on this rising metal price environment that we are in at the moment.

Turning to the results, which is on the slide, we have summarized the Q1 production and cash costs by region on that slide, and it shows the, as Greg mentioned, 1.96 million ounces of production with a total cash cost of $283.

Turning to the operations, first off, we are really seeing some interesting opportunities which present themselves in Nevada. For example, the Placer Dome operation's lacked processing facilities for refractory or sulfide ores, and because we have those facilities available to us at Goldstrike, this could open some interesting opportunities for us.

Moving to highlights of our operations, Goldstrike had a great quarter of production, mainly due to good grades that we encountered in the pits. Our power plant that we commissioned at the end of last year is operating extremely well, and is already showing benefits with lower electricity costs at the mine.

At Eskay Creek, we had strong silver prices together with good silver production, which contributed to a very high by-product silver credit. As a result, the mine reported cash costs that were negative to the tune of $154 an ounce.

We are also pleased to say that with these high silver prices, the life of Eskay will now be extended into 2008.

At Cortez, production was lower mainly due to a phase of low-grade ore that we are going through. Currently the grade of the ore is significantly below the average reserve grade -- there's really a timing issue -- and we expect to see these lower grades as we sequence through them for at least the next 12 months. Costs were also impacted by a $70 charge to royalty and production taxes, which is higher due to these current high gold prices.

We have had a team looking at these operations. I'm pleased to say that the team has come away with some good ideas where we think we can actually try and recover some of the production that we're losing to low-grade by leaching the side slopes of the older leach pads.

Turning to South America, Greg and myself were down there last week. We had a very exciting trip, where we visited all the operations in South America. The first one, Lagunas Norte, is continuing really very well, with grade and recovery looking good. The pit is currently ore-bound at the moment and we are currently looking at ways of increasing throughputs through the primary pressure.

At Veladero, the production levels continue to increase, due to higher equipment availability. I'm really pleased to say that the training programs we have put in place are really paying dividends now, and we really have a very motivated and skilled workforce at Veladero.

It is also interesting to note that we are picking up some pockets of very high-grade silver ore, which we are now stacking separately on the pad, and currently we have a team working at trying to enhance silver recoveries of these high-grade silver pockets. Once we've cracked the issue, we will then remove that high-grade silver and recover the silver.

Zaldivar, as Greg mentioned, the copper mine in Chile had a good quarter, produced 60 million pounds of copper at a cash cost of $0.60 per pound. We realized a price of $2.31 per pound over the quarter. So obviously it contributed a lot of cash flow to the company. We also expect to see a gradual increase in production over the next three quarters.

In our Australia Pacific region, Cowal poured its first gold on Sunday and has now commenced its operations. Total capital cost is expected to be approximately $375 million, due to the very competitive state of the Australian mining industry with higher labor and material costs, which were the main causes of the increase.

I am pleased to say the mine is now well set up and we have very large stockpiles of ore ahead of the plant, and we will quickly process those ores.

At Porgera, there was a temporary labor disruption early in the quarter and some power outages, which did result in lower production, but we've now got those issues behind us. We are also doing some remedial work on the West Wall. When this is complete, we expect the production rate to pick up.

In Africa, North Mara production was affected by delays in receiving new equipment, and generally the main pits, the Gokona pit, is roughly 3 million tons of waste under stripped. We are currently very busy catching up to the stripping, but in general, the asset looks really solid and I think North Mara is going to have a good future.

The South Deep, the joint venture has made some management changes and we expect results to improve over the year. I must say, it's a really well-engineered project. The geometry of the ore body is very impressive.

At our other projects, we are continuing to work with the work that Placer Dome had done on Cortez Hills, Pueblo Viejo, and Donlin Creek, and we're continuing to advance them. Also, Pascua-Lama, we should be able to start construction later in the year. Obviously, this is conditional on the permitting development team and their expertise gained after they brought on those four new mines during the last 12 months. We certainly can create value by advancing our new pipeline of projects.

I'll now hand it over to Alex to give an update on exploration.

Alex Davidson

Thank you, Peter, and good afternoon. I wanted to take this opportunity to update you on what we have done to integrate Placer Dome exploration into the Barrick culture. As well, I want to give you a picture this afternoon of the opportunities within the portfolio.

First, let me reiterate the Barrick approach.

Exploration is a core strength at Barrick, and we have worked hard over the years to develop a strong, discovery-driven culture with an exploration team that's got a proven track record of exploration success.

Barrick's consistent investment in exploration is testament to the importance that Barrick's board and management places on it as a key vehicle for future growth. For 2006, we are budgeting exploration spend of about $170 million, which is evenly split between greenfields regional exploration and brownfields near-mine exploration.

We've now had time to take a good look at the assets acquired from Placer Dome, and we see significant opportunities to find new ounces, especially at and around their mines.

As you know, Barrick and Placer have been working in similar districts over the years, so we have already eliminated duplication in our 2006 exploration plans and budgets. We've kept a number of Placer Dome exploration people, but we've significantly cut back on the projects they had regionally and we have closed certain offices.

We think the exploration potential around the Placer mines is great, especially in Nevada. To realize that potential quickly, we've now established Barrick discovery driven leadership at all of the mine sites. We have done this by putting key Barrick exploration people in charge of exploration at each of the major Placer sites.

Some of you may know Keith Bettles from his Goldstrike days. Well, Keith is now heading up Bald Mountain. Similarly, Bob Leonardson from Goldstrike is now heading up exploration at Pipeline Cortez, and Karl Marlowe is driving exploration out at Turquoise Ridge. In short, Placer Dome's hitherto under-explored assets are now being managed by a stronger team which combines the best of Placer Dome with our guys at Barrick.

So let me take a few minutes now to highlight some of the top projects in the portfolio.

In Nevada, I'll talk about two operations with excellent upside, as well as update you on the results and the potential at South Arturo. At Porgera, PNG, we're excited about the depth potential in this giant deposit and in the area. At North Mara in Tanzania, large drill programs have recently commenced, but that's not all.

Our pipeline has additional quality projects like Turquoise Ridge, Nyanzaga, and Frontera, as well as renewed exploration at both Donlin Creek and Pueblo Viejo --- but we don't have time to highlight those today.

Nevada remains our key district. We now have 26 exploration rigs turning in Nevada, working on our extensive land positions on each of the major trends -- the Carlin, Getchell, and Cortez. Finding more ounces in Nevada is key, as it allows us to capitalize on a significant infrastructure we have in the region, from both a mining and a processing perspective. Accordingly, we've set an exploration budget of about $50 million for Nevada for this year.

At Pipeline Cortez, there are two main clusters of mineralization: the Pipeline group, which includes Gold Acres, Pipeline, and South Pipeline; as well as the Cortez group of deposits -- Cortez and Cortez Hills impediment.

In the Cortez window, a corridor is defined as a window of lower plate rocks, shown in blue on the slide, that also includes a big intrusive, shown in pink, the Cortez fault, and several north-northwest structures. It's notable that this same geological architecture exists both here at Cortez and at Goldstrike, where we also have Lower Plate rocks, the Goldstrike intrusive, and the Betze-Post Fault.

Here at Cortez, much of the prospective rocks in the main mineralizing faults are concealed by the later cover rocks, and are shown in gray-beige on that slide. There has been a very limited amount of exploration drilling along the length and extensions of these structural zones.

We are encouraged by what we have seen so far, and our geologists think that Cortez appears to be the mineralizing center of the entire trend. Again, much like Goldstrike is on the Carlin Trend. Cortez Hills itself still remains open to the north and south at depth.

For 2006, the 100% exploration budget for Cortez is about $11.5 million, and we've already drilled about 36,000 feet. Of the total 26 rigs we have in Nevada, 7 are turning at Cortez right now and we have a few in the Gold Acres area.

This next map outlines the whole Bald Mountain property. It's 45 kilometers from north to south, so it's a big area. Historically, exploration was limited here to looking at small, individual oxide pits and conducting exploration drilling near the perimeter of those pits.

These pits surround an intrusive, and we're starting a drilling program right now to drill between the pits and throughout and around the intrusive. At $500 to $600 gold, we may be able to coalesce these pits into a larger economic pit.

What I like about the Bald Mountain district is that it contains not only the intrusive-related deposits that I just mentioned, but it also contains very under-explored, Carlin-style deposits in the east and south areas, which are also shown on the map.

Areas that host gold deposits of different styles or types are always exciting, as it means the gold mineralizing system was strong, and is pumping gold into a lot of different rock types. You see this in all of the major gold districts.

For 2006, our budget at Bald Mountain is about $6.5 million to $7 million for a 48,000 meter drill program. 60,000 feet have already been drilled, and we are already expanding some other resources.

At South Arturo, we currently have four rigs on the property to upgrade and expand the resource. This deposit is still open and preliminary metallurgical tests suggest good recoveries, as all the ore so far is oxide.

For 2006, we have already drilled almost 80,000 feet in 60 holes. This photo shows a Dee open pit in the top left-hand corner, and the Storm Deposit sits just to the north of that. The Bootstrap Mine sits just to the south of the slide, so South Arturo sits between the Dee pit and Bootstrap.

It's probably worth mentioning, while I have this photo up, that more recently we've intersected mineralization in what we call the Hinge Zone, which may well be a new parallel zone to South Arturo -- it's located in the top right-hand corner of the slide -- as well as higher-grade [breaches] in the main area. There's clearly multi-million-ounce potential here, and we keep getting positive surprises.

Let's go to PNG now and Porgera. I'm really excited, although I haven't been there, about the potential at Porgera.

What we're looking at here is a north-south cross-section. You can see the current pit outline in the top of the slide and the current limit of drilling. At Porgera, the very high-grade mineralization is associated with intersections of major structures. This is highlighted on this slide by the intersection at Zone 7 in the top left, which contains 7 million ounces at 28 grams per ton, and also the intersections of the Central and North Zones, which are also shown in dark red.

Mineralization is controlled by these structures and they have a strong vertical extent. You can see the deposit is largely open at depth, and there's been no drilling beyond that limit of drilling line. Extending these ore zones to depth means there may be more major intersections of mineralized structures under Zone 7.

For 2006, we are planning to spend about $3.5 million on exploration here. We've also just moved one of Barrick's exploration geologists from Australia to Porgera to head up this effort.

In Tanzania, there's been limited exploration on most of the landholdings in the North Mara area, and many targets have been identified along the Belt, some with near-term potential. This is a close up of the Gokona-Nyabigena area. Work is underway at both the western end of the Gokona pit and between the two pits.

At these gold prices, it is again possible that more mineralization between these pits could cause the two pits to come together.

I was just at North Mara last month and was very, very impressed by both the quality of the geological work there and by the potential.

Barrick now has three operating gold mines in Tanzania and three development projects, and we are exploring in and around all of these properties, and elsewhere in the belt very aggressively.

In summary, we have a disciplined and consistent approach to exploration at Barrick, and our chances of making a near-term discovery are enhanced by advancing our best projects faster and by focusing on the best areas in which to find gold, which are those that I've just mentioned. The Placer acquisition just gave us more of those best areas.

Reserve and resource development again is a top priority for 2006. We're very excited about the potential of Placer's mines, as we feel that they have been under-explored and all of our projects are now being managed by a strong, discovery driven team.

So now I'll turn it back to Greg. Thanks.

Greg Wilkins

Thanks, Alex. I'll just quickly go through these final comments so we have some time for questions.

You can see from the table, we wanted to outline for you the continuity of the hedge book position. As you can see from the table, we had at December 31st, 2005, 10.5 million ounces of what we characterize as corporate sales contracts. In the footnotes, you can see 9.5 million allocated to projects. That's the total 20-million ounce number you are familiar with.

During the first quarter, we reduced that corporate book by 4.7 million ounces and so at March 31st, we had just 5.8 million left. Since then, to the position as of May 3rd, we dropped it by another 1 million ounces, so it's only down to 4.8 million ounces.

We plan to eliminate the remaining 2 million ounces of Placer's legacy book by the end of this year, and we will eliminate the balance of the 2.8 million book no later than the end of 2009. That would be something in the order of 1 million ounces a year in '07, '08, and '09, but we will reserve the right do things more quickly if we see opportunities to do that.

We have yet to share with our investors and the analysts, sort of, the outlook for the hedge position. We are providing transparency with respect to what we're going to do with the remainder of the book. As we had said all along, we were going to be aggressive, and we have kept to that mantra.

Let me just turn quickly to the outlook for the year. We are sticking with our guidance that we put forward earlier. In spite of the higher gold prices, which actually put pressure on costs through royalties and taxes and other gold-price-related costs, we are sticking with our cost guidance of $275 to $290, 8.6 million ounces to 8.9 million ounces; copper production of about 350 million pounds. We anticipate corporate admin costs will be about $140 million; and project-development expenses, which really relates to the development of our projects, but we can't capitalize, for accounting purposes, for U.S. GAAP purposes, but they really represent feasibility studies, is about $135 million. Total CapEx between sustaining and projects will be about $1.2 billion to $1.3 billion.

In summary, the transaction with Placer has created a Barrick which now has the strength, breadth, and scale to be successful and capitalize on the opportunities that we have within the company. We have a world-class portfolio of minds. We have seen the strategic fit amongst the mines. We've talked about that in the past. We have experience in building new mines. Looking at the pipeline of development projects and exploration potential, we can manage to bring that to fruition.

We have a strong financial position, still I think the only A-rated paper in the industry. We have significant liquidity in the balance sheet, despite having used of our liquidity to reduce the hedge book. Of course, we have the largest gold reserves, but also the largest silver reserves and some significant copper reserves.

I think we are very well positioned to continue to generate good financial performance, which will translate into good shareholder value.

So with that, let's open it up for questions, Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Barry Cooper from CIBC. Please proceed with your question.

Barry Cooper - CIBC

Yes, a couple things. On the hedge book, sounds like in April there was, in essence, $400 million spent to reduce 1 million ounces, or about $400 per ounce. Given where the gold price was in April, kind of in the $650 or $640 range for most of the month, how does the math work out to that? Relative to where in essence, mark-to-market would be, suggesting something around $250? Where am I going wrong on that?

Jamie Sokalsky

Barry, it's Jamie. You're referring to the, I guess, the $1.2 billion in total. In the first quarter our cash outlay was $814 million.

Barry Cooper - CIBC

I was just referring, keeping the math simple, the difference between the $814 million and the $1.2 billion implies, like, the $400 million that was done in April, right?

Jamie Sokalsky

Right. But some of that amount relates to the first quarter that wasn't settled yet in the first quarter. So we spent $814 million in cash in the first quarter, but of that 4.7 million ounces that were reduced, some of that cash just relates to those ounces in the first quarter but gets paid later. So we didn't spend $400 million to reduce the million ounces. It's less than that. It's only about $250 million for that million ounces.

Barry Cooper - CIBC

Okay. That makes a lot more sense. Then, Jamie, while I've got you there, capitalized interest was significantly higher than what I was expecting. I would have thought that you would have been expensing most of your interest, seeing as the projects are up and running. What was the reason for the high capitalized interest component?

Jamie Sokalsky

Well, we were still capitalizing some interest to Cowal, but the primary amount that's being capitalized is to the Pascua project, Barry, and there are a few other projects as well. But Pascua is absorbing most of the capitalized interest.

Barry Cooper - CIBC

Okay. I guess I was under the impression that wouldn't be capitalized until there was a go-ahead decision on that. But I guess what you're saying, there is.

Jamie Sokalsky

Yes.

Barry Cooper - CIBC

Then, finally, and I'll get of the line because I'm sure there's going to be 101 other questions from others. Maybe, Alex, can you just contrast the difference between the opportunities that you see at Reko Diq versus Cerro Casale?

Alex Davidson

We were just at Reko Diq not too long ago. We see there a great under-explored project in the initial stages of exploration. We're very pleased with the acquisition that we made with Antofagasta on Tethyan. And I don't think it's fair to compare projects, one to the other. But just suffice it to say, we're very happy with the Reko Diq one.

Greg Wilkins

The acquisition cost for those exploration resources is about $200 million for 27 billion pounds of copper and 21 million ounces of gold at a deal structure that's 50/50, all heads up with a copper partner. It's a very attractive exploration opportunity, and our entry price is remarkably low given the information that we have in front of us.

The question is Pakistan. As Alex said, we went there and we've actually met with senior government officials. And we find that the environment, when you get on the ground, is very conducive and helpful to and supportive of the mining and natural resource development industry. So we're very excited about the opportunity.

Barry Cooper - CIBC

Greg, has there been any discussion with Antofagasta for a split stream on the commodities, where they would take the copper and you the gold?

Greg Wilkins

Not yet, Barry. I mean, we're working on an agreed exploration program, and we really want to try to drill that out, firm up a bunch of those resources. And we have a very good working relationship with those guys, and we'll just see how things unfold, what works for them, what works for us. At the end of the day, if we just split the production equally, gold or copper, that will be fine with us.

Barry Cooper - CIBC

Okay. Thanks.

Operator

The next question comes from the line of John Bridges from JP Morgan. Please proceed with your question.

John Bridges - JP Morgan

Hi Greg, everybody. I'm just trying to pin down the copper number. I think at the time of the deal you were saying that you were going to be booking cash costs including the acquisition costs. But now you seem to have gone back to a $0.60-odd number, which looks like the Placer Dome one. Where did that go to? Where did the other costs go?

I don't know if I've fully followed the Barry discussion on the hedge thing. The $814 million that you spoke of there, where does that appear in your accounts as stated?

Jamie Sokalsky

John, with regards to the first question on copper, when we first were looking at the purchase price adjustment, which was a revaluation of Placer's inventory, on our initial guidance, we had included that as an additional cost over our cash costs. And, hence, we were looking at a cash cost that was about $1.10.

John Bridges - JP Morgan

Right.

Jamie Sokalsky

What we've done, there still is a purchase price adjustment, which is about $45 million on the copper inventory, because we have to revalue the copper. But that is actually not in our costs of sales, not in our cash costs. It goes through income statement in our cost of sales as part of the amortization.

So we're showing, really, the true cash cost, being that $0.60 that we talked about, and the purchase price adjustment is now going through another line on the income statement.

John Bridges - JP Morgan

Okay.

Jamie Sokalsky

Does that answer your question, John?

John Bridges - JP Morgan

Yes, that's helpful.

Jamie Sokalsky

With regards to the $814 million, in the first quarter, it shows up on our statement of cash flow. So if you look on our statement of cash flow, you'll see it under the financing charges, $814 million, which we call it the settlement of derivative instruments acquired in the Placer Dome acquisition. That's the cash outlay that the Company made, either through financial closeouts or opportunity costs of delivering the Placer Dome legacy position through the quarter. That's the difference between the cash price of those contracts, and what we ended up closing them out at.

So it cost us, essentially, $814 million to close down the 4.7 million ounces of the Placer hedge position. Some of that cash is being paid after the end of the first quarter, so it's not in that $814 million. But that's essentially the cash cost that we have to close them down, and the accounting rules dictate that we put that through the financing section of the cash flow statement rather than operating cash flow.

John Bridges - JP Morgan

Okay. I guess I should brush up on my speed reading. The DD&A you report, is that likely to be a good figure going forward prorated for the deal?

Jamie Sokalsky

That number is likely to increase somewhat, John. We haven't had a chance to do all of the work that's necessary to establish the fair value all of the PP&E. That will be done through the course of the year. We expect that the amortization will go up slightly as a result. But we haven't done that work yet, so we can't give you any guidance.

John Bridges - JP Morgan

What are you going to do about the assets held for sale for Goldcorp? Is that just going to be a single line item?

Jamie Sokalsky

Well, they're shown as two line items, assets less liabilities on the balance sheet. Those will be gone in the second quarter when we close the Goldcorp transaction this month.

John Bridges - JP Morgan

Okay. That makes sense.

Jamie Sokalsky

So they're there right now. We have to put them on there. But at the end of the second quarter, they will disappear.

John Bridges - JP Morgan

Okay, thank you.

Jamie Sokalsky

You're welcome.

Operator

The next question comes from the line of John Hill from Citigroup. Please proceed with your question.

John Hill - Citigroup

Good afternoon, everyone. Congratulations on a strong result and approaching this integration in a very methodical way. I was just wondering, you have several operations here where you're looking for cash costs to remain well above 400 for the year -- South Deeps, Turquoise, and Porgera -- sounds like you're very excited about the long-term at Porgera. What kind of criteria will you be applying to South Deeps and Turquoise in terms of either making those seriously economic or pursuing other alternatives?

Peter Kinver

Can I answer that one, Greg?

Greg Wilkins

Yes.

Peter Kinver

This is Peter Kinver here. Basically, if I start with the South Deep mine, we visited it twice, and we were quite pleased to see that the engineering is certainly being put in place, it's been a long struggle. the twin shaft complex is now in place, and I think we're going to see better volumes and better grades coming out of South Deep quarter on quarter. So we expect to see certainly an improvement in the cash cost there.

At Porgera, they had a tough quarter, with labor unrest and power outages, as we mentioned. But despite that, it still managed to produce a reasonable amount of production. So we think if we can have a clear run in the level of production coming out of those mines, it will certainly improve a lot.

Greg Wilkins

On the cost side at Porgera, John, is that there's a lot of stripping that's going on as some of the West Wall is being remediated. And as that gets remediated over the course of the year, it will expose more ore and increase the production with the same sort of degree of mining costs. We are capitalizing some of that remediation work, but as we get the production levels back up, the costs will come down.

So I guess the answer to your question is that we feel that we're actually going to drive those costs down to a level that are going to make them economic as opposed to worrying about what we do with uneconomic assets.

John Hill - Citigroup

Great, great. And, then, just one brief financial question. There appear to be a $61 million lift to the cost of goods sold for inventory revaluation in the quarter, I guess an equivalent amount to be spread out over future periods. How much of that will show in the second quarter? And, then, is there really a revenue offset to that or not?

Jamie Sokalsky

John, it's Jamie. We had to revalue the inventory by about $120 million. So as you said, about $61 million came through the first quarter, and the bulk of that will be spread out over this year and slightly beyond, over the next couple of years. So, you'll see that additional $60 million that hasn't been amortized in cost of sales come in the next couple of years.

John Hill - Citigroup

But was there a commensurate $60 million or so of revenue flowing through this quarter? Or will we see that cash coming through?

Jamie Sokalsky

No, what that is, really, is because we have to revalue the assets and the liabilities as of the purchase date, we revalue the inventory to higher copper prices that existed at the time of the deal. And so, as a result, there's additional cost that comes through as you relieve that inventory. We're getting higher revenues because the copper prices are higher as a result. But there isn't a direct correlation to that.

Greg Wilkins

John, it's funny. The accounting rules require us to basically figure out what the profit margin is, rather than what the actual profit margin is. So this cost that we charge through, which is the allocation that Jamie's referring to, basically just depresses the margin on those copper inventories until they flush through the system, which will take through the balance of this year. But next year when we report earnings from copper, it will be based on the actual cost of production.

John Hill - Citigroup

Understood. Thank you.

Operator

The next question comes from the line of Oscar Cabreras from Goldman Sachs. Please proceed with your question.

Oscar Cabreras - Goldman Sachs

Good afternoon, gentlemen. Just two quick ones. With respect to your effective tax rate and your 2006 outlook, you point out to a 30% tax rate at a $575 an ounce gold price during the year. Just wondering what the effect of higher gold prices and copper prices would have in this effective tax rate? And what the assumption for copper price that you were using in this 30% tax rate?

Jamie Sokalsky

Oscar, it's Jamie. The higher gold prices will have a very modest effect on the tax rate. It will increase it slightly, but it's really not a material amount. So the higher gold and copper prices won't impact things, all things being equal. Really, unless we deliver contracts in lower tax jurisdictions out of our hedge position, the tax rate will go up just very slightly, but not materially.

Oscar Cabreras - Goldman Sachs

Okay. Thanks. Secondly, in terms of your synergies, you pointed out to about 50% on exploration and administration. Would the balance be in the improvements and technically in your operations? Or how is this split between that and finance and taxes?

Greg Wilkins

It's about 20% finance and taxes and about 30% shared business services in the operations and a reduction of redundancy cost. But we haven't tried to capture at this point, operational efficiencies. That's something that's going to come down did road after we've done more study.

Oscar Cabreras - Goldman Sachs

Okay. Thanks, very much.

Operator

The next question comes from the line of Victor Flores from HSBC. Please proceed with your question.

Victor Flores - HSBC

Yes, thank you. Good afternoon. One of the comments at the beginning of the exploration roundup was the excitement over Turquoise Ridge. I don't believe we heard any explicit commentary about what the outlook is for that asset with respect to exploration. I was hoping that, perhaps, Alex could elaborate a bit.

Alex Davidson

That's right, Victor. I said we didn't have time on this call to talk about all of them. At Turquoise, we've been drilling on a number of the targets underground. We're continuing to drill. I think as a matter of fact, we've increased the budget there as well because we think that not enough work has been done on some of these targets underground, and, so, the guys are working on the underground potential in some of these zones. [inaudible - technical difficulties] at the end of the second quarter.

Victor Flores - HSBC

Great, and thank you. And, then, perhaps, you also said you didn't really have a whole lot of time to talk about either Donlin or Pueblo Viejo, but perhaps I could prevail on you in the next couple of minutes to give us a bit of an update on those assets?

Alex Davidson

On Donlin, what I was talking about was the exploration besides the infill drilling program that's underway. We've increased both the budget and the amount of drilling that we're doing there. We're also starting a more of an exploration focus on, sort of, the north part of the dome and we're going to be testing IP anomalies at Donlin. That hasn't started yet. The exploration part hasn't started yet, but certainly the infill drilling is well underway. The project teams are continuing with the engineering and everything on it.

On Pueblo Viejo, again, we're going to be putting some exploration rigs in there in the near future to test between the two pits and around the margins and some of the outlying areas where the infrastructure site, the plant sites and stuff are supposed to go. So we're renewing exploration on both those properties.

Operator

Mr. Flores, do you have a response?

Victor Flores - HSBC

No, as I said, thank you, very much.

Alex Davidson

Thanks, Victor.

Operator

The next question comes from the line of Kerry Smith from Haywood Securities. Please proceed with your question.

Kerry Smith - Haywood Securities

Thanks, Operator. Perhaps, Greg, I just wondered if could you could give me some clarification on any union contracts that will expire and be required to be renewed over, say, the next 12 months? Just curious, within the portfolio, what has to be dealt with in the short term?

Greg Wilkins

I'm not aware that we have any negotiations within the next 12 months on any labor agreements. I think that we're pretty much in good shape. We don't have much in the way of union contracts on our side and I think South Deep and Zaldivar were both negotiated for a full-year term last year.

Kerry Smith - Haywood Securities

Thank you. And the second thing, just for Alex, on South Arturo, when do you expect that you would be able to release a new resource calculation?

Alex Davidson

We said in the last quarterly call that we would try and get you a resource calculation for mid-year. So, we still do our mid-year resource updates towards the end of June. So hopefully on the July call.

Kerry Smith - Haywood Securities

Okay. So that would include, maybe, the drilling up to the end of Q1, then, I guess, would it?

Alex Davidson

Yes. And then some, I guess. Probably a later cutoff date than that.

Kerry Smith - Haywood Securities

Jamie, if you'd give me a rough idea, at the current gold price of, say, $670 an ounce, what would it cost to you eliminate the remaining 4.8-million-ounce hedge if you were to do it at that price?

Jamie Sokalsky

At the current gold price, the cost to eliminate the remaining hedge would be basically in the neighborhood of about $2 billion.

Kerry Smith - Haywood Securities

Just one last question for Peter. At North Mara when we were there, it seemed to me like the mine could use significantly larger trucks. I'm just wondering if you have a longer-term plan to put a larger fleet in there, which I think would probably really help the efficiency of that operation?

Peter Kinver

I think we're doing a total evaluation, as Alex mentioned. With the higher gold prices, we might find that those pits become much bigger, in fact they may even coalesce, and, certainly, at that point we'd be looking at moving to the 200-ton class, that's for sure.

Kerry Smith - Haywood Securities

Okay. But that's not likely a decision, for what, another 12 months then?

Peter Kinver

Well, we'll work through it, and, certainly, some of the equipment we might have to replace. But it's a decision we take once we've got a clear picture of the full potential, which could take at least 12 months.

Kerry Smith - Haywood Securities

Okay. Thanks, very much.

Operator

The next question comes from the line of Patrick Chidley from BJM. Please proceed with your question

Patrick Chidley - BJM

A couple of quick questions, because I understand time's moving on here. I had to return to this copper inventory issue. But I just wanted to confirm that, even though the reported cash costs will be lower than previously advised, the net effect of the purchase accounting adjustment will be the same in terms of dollars; is that correct?

Jamie Sokalsky

Patrick, it's Jamie. It will be in the neighborhood of what we had reported. It'll be very similar. It's not exact, but it's in line with what we said. I should also mention that there is disclosure as to that amount in the tables in the MD&A as the component of cost of sales for that adjustment.

Patrick Chidley - BJM

Hello?

Jamie Sokalsky

Sorry? Patrick, sorry, did you not get that?

Patrick Chidley - BJM

Yes, I got cut off here. Sorry. I just faded out a bit.

Jamie Sokalsky

Sorry. The adjustment is in line with the guidance that we previously gave. It's shown in a table as the reconciling item in our cost of sales. So there's full disclosure in the MD&A as to what that amount is, and we will continue to do so throughout the year.

Patrick Chidley - BJM

Okay, thanks. And quickly on Pascua, the EIS has been approved in Chile, but are you still awaiting approval from Argentine authorities?

Jamie Sokalsky

Yes, we're working through and we hope to have the process complete towards the end of the second quarter, early into the third quarter.

Patrick Chidley - BJM

Right, okay. And with the hedge buyback, do you think that has any effect pushing up the gold price at all in the first quarter and, obviously, first part of the second quarter? Or is that not really large enough to make an impact?

Greg Wilkins

Patrick, there have been so many factors that have impacted the gold price -- ETF, a lot of investment buying, many other things in the markets that it's really difficult for me to say what, if any, impact our involvement in the market has had.

Patrick Chidley - BJM

Great, okay. Well, thanks, very much, great quarter.

Greg Wilkins

Thank you.

Operator

The next question comes from the line of David Gagliano from Credit Suisse. Please proceed with your question.

David Gagliano - Credit Suisse

Hi. Just a couple of quick questions related to the special items in the quarter. I just want to make sure I have this correct. The table on Page 10, the special items. Does that include the $11 million finance fee in interest income that's detailed in another section of the press release?

Jamie Sokalsky

Dave, no. It doesn't. It also doesn't include the financing charge that we incurred to, in essence, facilitate the Goldcorp cash transaction. So, they pretty much offset.

David Gagliano - Credit Suisse

Offset. Okay. Fair enough. And, then, the currency and the commodity hedge gains, the $11 per ounce figure in the cash cost per ounce, that's also not in that special items table, correct? That's typically included in your report at operating results, right?

Jamie Sokalsky

Yes, that's correct, Dave. We don't look at that as a special item. That's really part of our cost management. As we do with so many other items, we feel that it's not a special item, but just a means of managing the costs.

David Gagliano - Credit Suisse

Okay. And, then, just the $275 to $290 target for '06, does that include any expectations for additional currency commodity hedge gains for the rest of the year?

Jamie Sokalsky

Well, the $270 to $290 range includes the hedges that we have in place for the Canadian and the Australian dollar. So we're locked in the bulk of our currency exposures, and so that's factored into that range.

David Gagliano - Credit Suisse

Okay. All right. Thanks, very much.

Jamie Sokalsky

You're welcome.

Operator

The next question comes from the line of Tanya Jakusconek from National Bank Financial. Please proceed with your question.

Tanya Jakusconek - National Bank Financial

I have a question for Jamie on the hedge book again. Jamie, just on the reduction that you saw in the quarter, and, then, obviously, the 1 million ounces that you did subsequent to quarter end, can you give me an idea, was that from the Placer Dome hedge book? The 6 million ounces?

Jamie Sokalsky

The 5.7 million ounce reduction was almost entirely the Placer Dome hedge book. So as a result, the revenue would be, on those contracts, would be booked at the $567 per ounce price that was set up when we closed the transaction. And the differential, as I mentioned before, went through financing line on the cash flow statement. So, effectively, all Placer.

Tanya Jakusconek - National Bank Financial

Yes. So, okay. So you have just over, I guess, another million left or so on the Placer book?

Jamie Sokalsky

2 million ounces left on the Placer book, and it's that 2 million ounces that we will eliminate this year.

Tanya Jakusconek - National Bank Financial

Okay. Then I calculated, based on your quarter end, sort of a break-even cost on the entire hedge book at quarter end of about 305. But, then. subsequent to quarter end you did another million-ounce reduction. What would the 13.8-million-ounce entire hedge book have as a breakeven cost?

Jamie Sokalsky

The entire hedge book would have a breakeven cost that's right around that number, Tanya.

Tanya Jakusconek - National Bank Financial

About 305?

Jamie Sokalsky

Yes, just above 300.

Tanya Jakusconek - National Bank Financial

Then, I have a second question for Greg, if I could. Just on the Cerro Casale, Greg, I see that you've decided to sell the interest back to Bema and Arizona Star. Can I just make sure it was due to the fact that the way the contract was set up, that you would have to basically carry for 51% interest was the reason that you really didn't want to proceed?

Greg Wilkins

That's right, Tanya, we just didn't like the deal structure and the returns relative to the risk that we'd have to take on. 100% risk for 50% of the ups doesn't give you a very robust return.

Tanya Jakusconek - National Bank Financial

Yes, no. That's right. When will that be given back to them? When will that be done?

Greg Wilkins

We're just in the process of working through that with them right now. So it shouldn't take too long.

Tanya Jakusconek - National Bank Financial

One last question for Alex, if I could. Just on Arturo, Alex, just coming back to Nevada on the exploration. Can I ask how many holes now you have in that Hinge Zone? And my understanding is that it's much shallower than the Arturo, is that right?

Alex Davidson

That's right. The Hinge Zone is shallower than Arturo, and we probably have half a dozen holes in the Hinge Zone now.

Tanya Jakusconek - National Bank Financial

Okay. And how much shallower is it?

Alex Davidson

You got me, Tanya.

Tanya Jakusconek - National Bank Financial

Okay. Maybe someone can get back to us on that?

Alex Davidson

Yes.

Tanya Jakusconek - National Bank Financial

That would be great. From now until you're going to report a resource in July, is it still testing the Hinge area? I understand there's another fault east of that. Would you be testing that area, too?

Alex Davidson

In the near-term, it's mainly on the Hinge Zone and continuing on the infill to try and get the infill on the main zone into the measured and indicated.

Tanya Jakusconek - National Bank Financial

Okay. And I probably missed the budget that you had for that. I didn't hear a number. It used to be 4.5 million. Is that still the case for that?

Alex Davidson

On South Arturo, yes, that's still at 4.5 million. But they're going to be coming back to us for more money.

Tanya Jakusconek - National Bank Financial

Okay. Okay. Well, thank you, very much.

Alex Davidson

You're welcome.

Operator

The next question comes from the line of Larry Strauss from GMP Securities. Please proceed with your question.

Larry Strauss - GMP Securities

Hi, thanks a lot. This is a follow-up question to Tanya's on Cerro Casale and the deal structure there. Really, it relates to the power plant that you were proposing that could create synergies between Pascua and Cerro Casale at the time that the Placer deal was announced. Is that basically eliminate that potential synergy once you give that asset back or sell that asset back?

Greg Wilkins

We're just going to return it to Bema and Arizona Star and, then, doesn't mean that we're going to end conversations with them about what might work in the future. They'll undertake a program to figure out what's in the best interests for themselves with that particular asset. The synergy exists, and it might be an interesting enticement for them to come forward and do something with us but on a different deal structure. But it's just too early to say what's going to happen.

Larry Strauss - GMP Securities

Is it possible that, even if you don't proceed with them on that asset, that the synergy could be resurrected if you could cut a deal on power anyway and share the costs?

Greg Wilkins

It's possible, absolutely possible. I mean, I think that we, as an industry, ought to be looking at ways to really manage power costs and other costs. We've been very focused on that. We, as an industry, need to be cooperating in terms of how we can maintain and manage the cost structures for these assets. So if there's a synergy to be had, we'll certainly be open-minded about trying to achieve it.

Larry Strauss - GMP Securities

Very good. And a follow-up question on the hedge liquidation for Jamie. You mentioned that it didn't hit your operating cash flow but, rather, went through your cash flow finance line items. You mentioned that you have a gold price realization of $537 an ounce in the first quarter. The hedge was priced at $567 an ounce, and the average price was $554. Was the hedge a part of that realization, or was it excluded? And if it was excluded, did it flow through the income statement?

Jamie Sokalsky

Larry, there are a number of factors that impacted that price. Some of the hedge came through at $567. There were spot sales that were at different prices. And we also delivered 200,000 ounces against the Barrick position, which wouldn't have been at $567. So, there are a number of factors that came into that $537 price.

Larry Strauss - GMP Securities

Okay. But it did impact your income statement and your net income for the quarter?

Jamie Sokalsky

The differential, yes, impacted our income statement in the quarter because the realized price was less than the spot price. That's right.

Larry Strauss - GMP Securities

But the hedge also?

Jamie Sokalsky

The bulk of it did not impact the income statement and operating cash flow.

Larry Strauss - GMP Securities

The bulk of the hedge liquidation did not impact the net income for the quarter?

Jamie Sokalsky

That's correct. With the $537 versus the $554 differential was the amount that impacted the income statement. So, going forward, for the rest of the year, from here on in, we've got 2 million ounces of Placer position at $567, which we expect to be going through the income statement. The rest of our production will be sold at spot.

Larry Strauss - GMP Securities

And the 4.7 that you sold, you just mentioned, didn't go through the income statement. Why would the 2 million go through, but the balance not go through?

Jamie Sokalsky

The 2 million goes through the revenue at $567 per ounce, accounting-wise. Because that's the price that those contracts were reset at. The rest of the production will go through as spot.

Larry Strauss - GMP Securities

Right. So the amount that you liquidated in Q1, which is 4.7 million ounces, would have also hit the revenue line, and that would have impacted the $537 price?

Jamie Sokalsky

Well, some of it hit the revenue line. As you know, we didn't produce 4.7 million ounces in the first quarter. So we closed out a bunch of these contracts. So some of the contracts hit the revenue line at $567. Remember we didn't get the Placer position until late January. So some of our production was sold at spot and some of it was delivered against the position.

Larry Strauss - GMP Securities

And is any of the balance that didn't hit the revenue line item in Q1 going to hit the revenue line item subsequent to the end of the quarter that was already liquidated? And I'm not talking about the 1 million ounces that you liquidated subsequently, I'm talking about the 4.7 million ounces.

Jamie Sokalsky

There will be about 1 million ounces that were liquidated in the first quarter that will flow through revenue at around $567 for the rest of the year after the end of the first quarter.

Larry Strauss - GMP Securities

Will that be in Q2 or just spread out through the year?

Jamie Sokalsky

Spread out through the year.

Larry Strauss - GMP Securities

Thanks a lot.

Jamie Sokalsky

Okay. You're welcome.

Operator

The next question comes from the line of Mark Smith from Dundee Securities. Please proceed with your question.

Mark Smith - Dundee Securities

Yes, actually, Larry just asked the one I was going to ask on Cerro Casale. So I appreciate it. That's great. Thanks.

Operator

(Operator Instructions) The next question comes from the line of John Tumazos from Prudential. Please proceed with your question.

John Tumazos - Prudential

Good afternoon. Over the many years I've known your Company, the hedging was a part of the financial strategy, and there was a graph that was often part of your presentations with a little sine curve and the expectation that if the hedge book went against you, you would deliver spot and cover the hedge in a declining gold market.

Obviously, you think something's changed in this gold market, even though short-term interest rates and long-term interest rates have risen, while the lease rate is near zero, so the Contango's almost 5% now. Could you review what has changed?

Secondly, given that $2 billion of cash is going to be spent this year, and you sound like you want to buy more hedges in over time, should we expect you to issue stock to finance the hedge buybacks or replace some of the cash that's gone away?

Greg Wilkins

John, it's Greg. I mean, we made the decision to adopt a no-hedging policy a couple years ago, and it's really an outlook on the gold market and our sense of the financial position of the Company and part of our financial management plan.

So nothing has changed in our view in the last couple of years with respect to implementing the hedging. When we look at our liquidity position, we look at the drawdown of the hedge position, which you have to remember is really more of an opportunity cost than a cash outflow. But we have ample liquidity to meet our goals on dealing with the hedge position and developing our projects without having to issue any equity.

Jamie Sokalsky

John, it's Jamie. I'll just add one other comment. One of the things that's different as well is we bought this hedge book from Placer. We're taking down the Placer hedge book. This is something that we acquired, it wasn't something that we had put on. That's what we're focusing on this year.

John Tumazos - Prudential

Were Placer's hedge agreements effectively the same as yours? Or were there any issue's with the counterparties that made the Placer hedge book less desirable?

Greg Wilkins

The Placer hedge book was not the same as ours. Barrick's hedge book had more flexibility in a number of respects. However, the Placer book did not have anything in it that is affecting our decision to reduce the book. Placer had their contracts scheduled to be delivered over the next five years. There's nothing that's changing how we would manage with respect to their agreements.

John Tumazos - Prudential

Thank you.

Greg Wilkins

You're welcome.

Operator

The next question comes from the line of Don Blyth from Paradigm Capital. Please proceed with your question.

Don Blyth - Paradigm Capital

Good afternoon, gentlemen. Congratulations on the Placer acquisition. You've got a lot of opportunities ahead of you and a lot of work, too. I was wondering if you could comment on the situation in Tanzania where the president of the country was quoted as saying that a serious review of the agreements on the mining sector will be undertaken to bring them into line with Tanzania's needs? Obviously, with Venezuela, Bolivia, and Peru as examples, investors are getting pretty nervous about when they hear about these kind of reviews, worrying about nationalization. Any comments you can give on that?

Greg Wilkins

Yes, it's Greg. We recently met with the prime minister actually, in Tanzania, and he expressed his concerns to us directly. And we are quite confident from his responses that the Tanzanian government fully expects to honor all of its contracts and commitments.

I think that they would like to consider what may be a better structure from their point of view for a new operation. But I don't have any concern that they intend to seek anything other than what they might be able to accomplish through a straightforward negotiation. But I anticipate it will affect more of our future prospects than our existing prospects.

Don Blyth - Paradigm Capital

Thank you.

Operator

(Operator Instructions) Gentlemen, there are no further questions at this time. I will now turn the conference back to you. Please continue with your closing remarks or your presentation.

Greg Wilkins

Well, great. Well, listen, thank you, very much. And I thank everybody for their interest and their questions.

I'd like to actually just leave you with one closing little comment to provoke a little bit of thought because, of course, we always take a look at various things from different points of view. So I wanted to really make sure in my own mind that we had really hit a home run with the Placer situation.

So I took a look at our copper cash flow and I took a look at the copper companies and I looked at the multiples and I picked Phelps Dodge's multiple and our cash flow and kind of came up with a number of about a $5.5 billion in value for our copper asset.

And I said well, Harmony just bought a significant piece of western areas, and the implied value for that half of South Deep was about $1.4 billion, $1.5 billion. So if I take $5.5 billion for copper and I take $1.5 billion or so for our interest in South Deep, it comes to about $7 billion. When I take our net purchase price after the Goldcorp recovery of $8.4 billion, that means we spent $1.4 billion to acquire all the gold ounces in Nevada, all the gold ounces in Tanzania, all the gold ounces in Australia, and the development pipeline of projects, all for $1.4 billion. And I haven't seen math that attractive in the gold industry for a very long time.

So let me just close with that little thought to provoke your interest. Once again, thank you, very much, for joining us.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

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Source: Barrick Gold Corp. Q1 2006 Earnings Conference Call Transcript (ABX)
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